SAM

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It sounds like ABC is in a great position to capitalize on these regulatory changes. I’d push them to consider opportunities posed by combining their traceability solution (Advanced Track and Trace for Pharmaceuticals) with their inventory management product (Cubixx). They can likely extend beyond temperature sensitive pharmaceuticals with additional investments in the Internet of Things. Given their expertise and successful track record in this field, they may be able to offer solutions that trace drugs, sense their status (time to expiration, doses remaining), and facilitate streamlined orders via the Internet of Things. I imagine this product suite would be highly commercializable given regulatory requirements and other players; diminished appetite for making these sorts of investments on their own. ABC’s ability to innovate digitally and understand the regulatory and competitive environment seems like a tremendous advantage in an industry that meaningfully lags others sectors in digital adoption and progress. [1]

Source: Harvard Business Review. (2017). Which Industries Are the Most Digital (and Why)?. [online] Available at: https://hbr.org/2016/04/a-chart-that-shows-which-industries-are-the-most-digital-and-why [Accessed Nov. 2017].

(Thanks to “kurious koala” for the resource).

Walmart’s investment in IoT is critical to compete with Amazon after its acquisition of Whole Foods, but I’d encourage them to focus IoT efforts on their supply chain more than final delivery to customer’s homes.

If Walmart pursues the home delivery route, they may benefit from partnering with an established smart device player (e.g., Google Home) rather than patenting their own devices, given that Amazon’s Alexa is already in users homes. This will enable customers to place orders for delivery more easily at a lower R&D cost for Walmart. But even though Walmart’s retail footprint is several times larger than Amazon’s, I worry that they’re in the wrong place for home delivery economics to work: Whole Foods tend to be in more urban environments and cater to less prices sensitive customers who would value the convenience of delivery, whereas Walmart customers may be less willing to pay more for convenience given their preference for “everyday low prices”

I see IoT being more effective in de-risking and removing costs from Walmart’s supply chain, so that they can manage inventory more effectively, improve food safety, reduce supply chain waste, and pass those savings onto the end consumer. To me, this foots better with their “customer promise” than delivering directly to end user’s refrigerators.

On November 30, 2017, SAM commented on Nissan: Supply Chain Uncertainty in the Age of Brexit :

In this instance, I think it’s key to consider Nissan’s exposure relative to their competitors. This relative exposure will dictate whether the tariff is a competitive advantage or disadvantage, which influences the course of action they should take:
1) Underexposed: other players may source more parts outside the UK, or manufacture entirely outside the UK for cars sold in the UK. If this is the case, they’ll be hit with a larger tariff than Nissan for cars sold in the UK, which could give Nissan a competitive advantage. They may have the opportunity to increase prices less and make a share play or increase prices in line with competition and gain margin
2) Parity: in this case, I’d imagine all tariffs would be passed on to the consumer and the competitive landscape would be largely unchanged, unless the car category as a whole is more elastic than I think. I imagine a 10% penalty on even the majority parts isn’t enough to move the needle here if the whole category is affected
3) Overexposed: if Nissan imports significantly more than it’s competitors for cars sold in the UK, then it’s in trouble. This is the only scenario for which they need to consider immediate action. In addition to lobbying, it should look to make its supply chain as efficient as possible (e.g., reduce unnecessary movements across borders, evaluate any competitive domestic suppliers vs international alternatives) to best position it to avoid painful losses if penalties occur

I absolutely agree Walmart needs to continue not only to pay attention to isolationist trade policies, but to lobby against them. Earlier this year, they joined forces with Target and 100+ other major US retailers in the Americans for Affordable Products Group, backed by the National Retail Federation which lobbies hard against protectionist tax and trade policies that could impose a 20% penalty on many of Walmart’s imports [1]. This makes a ton of sense, given their high import exposure and commitment to low prices, as you mentioned.

But until there’s additional clarity around whether these policies will be enacted, Walmart should avoid increasing its import exposure where it can profitably do so. I was surprised to learn that despite this political pressure (and Trump’s and Walmart’s emphasis on creating American jobs), Walmart is actually moving away from the “Made-in-America” merchandise, at least in part, by inviting international sellers to list merchandise on its website [2]. Unless the financial benefits are significant, I’d discourage them from attracting additional negative political attention until there’s more clarity that they’re safe from import penalties.

Sources
[1]: http://fortune.com/2017/02/01/walmart-target-border-tax-trump/
[2]: https://www.reuters.com/article/us-walmart-vendors-exclusive/exclusive-not-made-in-america-wal-mart-looks-overseas-for-online-vendors-idUSKBN1AC1VJ

I absolutely agree Walmart needs to continue not only to pay attention to isolationist trade policies, but to lobby against them. Earlier this year, they joined forces with Target and 100+ other major US retailers in the Americans for Affordable Products Group, backed by the National Retail Federation which lobbies hard against protectionist tax and trade policies that could impose a 20% penalty on many of Walmart’s imports [1]. This makes a ton of sense, given their high import exposure and commitment to low prices, as you mentioned.

But until there’s additional clarity around whether these policies are enacted, Walmart should avoid increasing it’s import exposure where it can profitably do so. I was surprised to learn that despite this political pressure (and Trump’s and Walmart’s emphasis on creating American jobs), Walmart is actually moving away from the “Made in America” merchandise, at least in part, by inviting international sellers to list merchandise on its website [2]. Unless the financial benefits are significant, I’d discourage them from attracting additional negative political attention until there’s more clarity that they’re safe from import penalties.

Sources
[1]: http://fortune.com/2017/02/01/walmart-target-border-tax-trump/
[2]: https://www.reuters.com/article/us-walmart-vendors-exclusive/exclusive-not-made-in-america-wal-mart-looks-overseas-for-online-vendors-idUSKBN1AC1VJ

On November 28, 2017, SAM commented on H&M Aims to be Climate Positive by 2040 :

It’s exciting to learn that H&M is focused on having a positive climate impact. In my mind, there’s a definite tension between creating such a huge volume of short lived, fast fashion clothing and a focus on sustainability. That said, it seems like they have a pretty comprehensive definition of the impact their trying to offset, which inspires hope.

I’d encourage H&M to consider creating clothes that last a little longer if they’re serious about their commitment to having a positive environmental impact. McKinsey notes that clothing production doubled from 2000 – 2014, and will likely continue to increase as emerging markets begin to adopt Western consumption habits [1]. At the same time, consumers keep clothing items about half as long as they did 15 years ago [1]. If H&M is serious about this commitment, it may consider whether it can influence fast fashion trends to have an improved carbon footprint on the industry writ large, perhaps by encouraging consumers to make incremental tradeoffs between quality and frequency of purchase (e.g., sell higher quality clothes in slightly less frequent fashion cycles). If effectively implemented, this could reduce volume of clothes disposed without sacrificing revenue growth.

Source: [1] https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/style-thats-sustainable-a-new-fast-fashion-formula

This is a promising first step, but I echo your concerns that without an enforcement mechanism (policy changes or imposing mandatory supplier requirements), the effect might be limited unless Walmart can convince the rest of its supply chain that the social benefits and / or cost savings are meaningful enough to warrant changes.

Another interesting consideration is the carbon efficiency of different channels for Walmart. I was surprised to learn that brick-and-mortar is typically more environmentally efficient than e-commerce on a per item basis for purchases by Walmart customers, given larger in-store basket size, reduced packaging, and the tendency for multi-item orders to arrive in multiple deliveries [1]. As e-commerce gains traction and Walmart / Jet.com tries to compete with Amazon’s grocery and hard / soft line delivery, its sustainability may decline. Walmart needs to be thoughtful about the potential environmental trade offs of increasing its e-commerce sales, given its Gigaton mission.

Source:
[1] http://www.bain.com/publications/articles/how-to-cut-carbon-emissions-as-ecommerce-soars.aspx